Not getting paid? There are ways to speed up the payment process

May 15, 2000
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After performing a job on time, an hvacr contractor should not have to wait to receive payment. Whatever your payment terms, you expect them to be met.

The News wanted to find out if getting paid is a major problem for most contractors or just a minor annoyance. The general consensus: It’s both.

For instance, John Sedine, president of Lowing Heating and Air Conditioning, Grandville, MI, said that as much as 5% to 10% of his business is late payment. One of the worst is the State of Michigan, he said, which will hold a retention for six months to a year.

Work on new homes also can “go out six months to a year,” said Sedine. However, “Most people pay within 45 days.”

On the other end of the spectrum, Eric Woerner, vice president, operations, of Airtron/GroupMAC, Indianapolis, IN, sees almost no payment problems in his business. His bad debt expense is 0.1%, he said.

“It’s very unusual that we get paid as well as we do,” Woerner acknowledged, noting, however, that some custom builders have sometimes presented a problem.

Meanwhile, Mike Cannon, vice president of Crosby and Co. Heating and Cooling, Bossier City, LA, said he only on occasion has late payment problems, emphasizing that “We’re very explicit and detailed in our terms and conditions.”

Also, his firm tries to get some sort of history by talking with other contractors. “People who are late usually go 30 to 60 days out,” said Cannon.

Step 1: Expectations

For those contractors having problems getting customers to pay on time, S. Sam Kriplani, president of Inzap Inc., Palo Alto, CA, said he can help speed up the payment process. His company’s stated mission is to “revolutionize the way small businesses get paid by their customers.”

The first step in his five-step process is setting expectations.

“You should feel comfortable telling your clients the terms of payment you expect,” said Kriplani, “and the right time to do that is as close to when you make the sale as possible, preferably immediately after you’ve made the sale or just before they sign.

“Nobody will be upset if you tell them that your invoices are due in 15 days, and if you say that early in the process, you’ll get paid earlier.”

Customers who disagree about terms may suggest different ones. Kriplani advised that both sides agree on terms that both are happy with before work begins.

“And, since you are willing to give in a little on the terms, you have the right to emphasize that you really would like to be paid on time,” he said. “No customer should mind because you are both being up front about what is expected.”

Woerner and Cannon strongly agree on the importance of setting expectations. Customers “know our expectations and sign off on our policies,” stated Woerner.

“It must be understood up front what was agreed upon,” remarked Cannon.

Also, it’s important to say whether your terms are “payment received in office” or “payment sent,” Kriplani advised.

“Most people do not do this, but it is important,” he said. “I’d recommend you tell your clients that payments are on time if they are received in your office by the due date. This little hint will not only get you paid faster, but will also set the stage for the rest of the [payment] process.”

Also, he noted, make sure you put your terms on invoices: “Payment is on time if received in our offices on Date X,” or “Payment is on time if received in our offices within 20 calendar days of the invoice date.”

Step 2: Confirmation

The second step is called the confirmation letter. This is sent before the invoice is due, confirming the terms and the amount due with your customer.

“One of the best ways to get paid faster is to send your clients a message letting them know that you are serious about getting paid faster, but to do so in a way that communicates a desire to clarify things and get their feedback,” said Kriplani.

A confirmation letter states that you want to confirm receipt of invoice number so-and-so, with the invoice date, due date, and amount due. It will then ask the customer to call if s/he has any questions.

This letter is “written with care for the client,” Kriplani said. “We are confirming that they received something that they were supposed to, and that they are OK with what they received. It is professional, and it communicates that you are interested in getting paid on time.”

This letter also reduces the likelihood of getting one of the oldest excuses in the book: “I misplaced the invoice.” When you send a confirmation letter, you eliminate that excuse. Some people will use it anyway, he admitted, but you should hear it less. And some people actually do misplace the invoice. This letter lets you find that out earlier rather than later.

Step 3: Follow up

Step three is the “incredibly friendly, but incredibly timely follow up.”

Noted Kriplani, “Part of good collections is making your clients feel well treated. Your first letter about an overdue invoice should be as friendly as possible.

“Why alienate the clients who really intended to pay on time, but just forgot? Why alienate the clients who always pay on time, but didn’t just this once?”

Being friendly, however, doesn’t mean ignoring the problem. “If an invoice is overdue, you should feel completely comfortable letting your clients know about it.”

He suggests a letter that says, “If you get a moment, please take a look to see if you have sent in payment for the following invoice.” Then you repeat the invoice number, its date, due date, and amount, said Kriplani. You follow with, “We’re sorry to trouble you. If you have already sent in the payment, thanks. If you haven’t, please send it in as soon as you can.”

“Send this one the day after you expect the invoice in your office,” said Kriplani. “Then watch how quickly you get paid by clients who appreciate being treated with respect.”

Step 4: Reminder

Step four is another letter. This one, however, actually looks like a reminder.

“Part of the beauty of this process is that it doesn’t look like the typical series of collection letters that some of your clients might be used to receiving,” said Kriplani. “But now is the time to send a standard letter.”

The wording and timing of this letter isn’t as important as the first two, he noted. “But I suggest sending this one promptly, perhaps only seven days after you expect payment.

“Keep in mind that your client is late in paying you according to agreed-upon terms, and if you are following the process I recommend, this one is being sent after they’ve already received two communications from you about this invoice, and they still haven’t paid.”

Keep the letter polite and business-like, said Kriplani. It can include a statement that “This is just a reminder that we haven’t received payment for the following invoice.”

Step 5: Stronger

Step five is getting more serious. If you still haven’t been paid a couple of weeks after sending the previous letter, you need stronger action.

“At this point, you could send a stronger letter,” said Kriplani, “or you could call. Your choice will depend on your personality and the personality of the client you are communicating with.” The invoice now is at least three weeks overdue and you need to make it clear to the customer that you need to get paid, he said.

“I always recommend that you work with a client if they can’t pay you for business reasons,” Kriplani added. “Why endanger a good client relationship that could be preserved with a little give and take?

“But if there isn’t really a good reason, or if it constantly happens, then you need to start thinking about whether or not you wish to continue doing business with this client, and change the tone of your message to them accordingly.”

If this stronger letter (or call) still doesn’t work, set the stage for a call to a collection agency. The timing for this will vary depending on the client and the specific situation, but a letter to set the stage would include a statement such as, “If we have not received payment within five business days, we will be forced to take further strong action, such as turning this invoice over to a collection agency.”

With this letter, said Kriplani, “You just want to let your client know that their actions may require some actions on your part. If they know about it, they’ll be less surprised and irritated when it does happen, because you have given them ample notice.”

For more information on Inzap Inc., refer to the company’s Web site at www.inzap.com.

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